Editor’s Note: Chief Investment Strategist Alexander Green’s approach to building wealth is refreshingly simple.
He often says, “Save as much as you can, starting as soon as you can, and earn as much as you can for as long as you can.”
Below, Alex debunks some common investing myths and shares the truth about how to achieve financial independence for yourself and your family.
For more insights from Alex, check out our sister e-letter, Liberty Through Wealth.
– James Ogletree, Senior Managing Editor
Thirty years ago, the IRS counted 1.6 million Americans with a net worth of $1 million or more.
UBS – using data from several sources – put the number at 23.8 million in 2024, a nearly 15-fold increase.
What accounts for the surging number of everyday Americans with a seven-figure net worth, once the domain of CEOs and celebrities?
Three major factors: rising home values, rising stock prices, and continual inflation.
Let’s take a closer look at each and determine what you need to do – if you haven’t done it already – to become financially independent.
Let’s start with the basics…
I received only one piece of investment advice from my dad my whole life.
When I was a 22-year-old, he said, “Son, if you plan to stay in that town, you should buy a house rather than renting.”
It makes no sense to throw money away on rent – which is building equity for your landlord rather than you – unless your job (or your lifestyle) requires you to move frequently.
That’s what most U.S. millionaires have done. Overwhelmingly, they are homeowners.
They benefited from rising home prices, while renters found housing increasingly unaffordable, especially once rates started going up a few years ago.
The other thing most millionaire households did was invest in stocks.
No other asset class has outperformed a diversified portfolio of equities.
That means those who avoided risk – by investing solely in money markets, CDs and bonds – earned much lower returns.
Sure, with little to no volatility they had lots of restful nights. But they may not have a restful retirement if the money starts to run low.
Those who bought a home, invested regularly in stocks – in a 401(k) or elsewhere – and held onto them for 20 years or more almost certainly have a million-dollar net worth… or are well on their way.
If you did this, you probably feel a sense of pride that with work, discipline, and sacrifice you secured your family’s financial future.
The Washington Post sees it differently.
They recently accused millionaires – in an article, not an editorial – of widening “the gulf between rich and poor.”
There was no mention of how some folks don’t work, don’t save, don’t invest, or won’t stop spending.
That would undermine the victimhood narrative. (At the Post, personal responsibility is a forbidden subject.)
But here’s the rub: a million dollars isn’t what it used to be.
When I was growing up, the word “millionaire” was shorthand for rich.
Today it’s a nice, round number. But it’s also usually a point on a longer journey rather than a destination.
That’s partly due to inflation. It takes $2.1 million today to equal $1 million in 1995, according to the U.S. Bureau of Labor Statistics.
Most Americans recognize that a million dollars – while it certainly makes life more comfortable – will not provide a life of leisure.
According to Charles Schwab’s annual nationwide survey of 401(k) plan participants, $1.6 million is now the magic number.
That’s how much most feel you need to have to retire. Yet even that amount won’t provide a lavish retirement.
Invest $1.6 million in ten-year Treasury bonds and you will earn $67,200 a year at today’s rates – or $4,200 a month after federal and state taxes.
You could put the same amount into an S&P 500 index fund and – if it generates its long-term average return – it would earn about $160,000, or $9,625 a month after federal and state capital gains taxes.
After taxes? Recall that you have to sell part of your holdings before you can spend them.
And those capital gains rates – even long-term capital gains rates – are pesky.
Of course, the vast majority of Americans don’t think the rich pay their fair share.
So look forward to getting fleeced and denigrated year after year. (Welcome to the club!)
Of course, you could spend more if you dipped into your $1.6 million in capital.
But then your future returns would be lower and – depending on your spending habits – you could run through the entire principal amount, especially with people living longer.
Unfortunately, the investment return on zero is always zero.
That means the surest bet is to save as much as you can, starting as soon as you can, and earn as much as you can for as long as you can.
This is the safe way to reach your financial goals and to make sure your dependents always have enough.